Section 11: Globalization, Trade, and Finance

If a country can produce a good with fewer resources than another is said to have an a/an ________ Absolute Advantage
What are the likely consequences of protecting domestic jobs in industries like textiles that are at a comparative disadvantage to our trading partners? higher prices for textiles
Use the graph below to identify the loss to consumers from the tariff on foreign shoes. In this graph, the x-axis is the quanitity of shoes and the y-axis is the price of shoes. The line for domestic supply slopes upward, and the line for domestic demand slopes downward. A horizontal dotted line connects the point where the domestic demand and the domestic supply curves cross to the y axis at price=pdom. Below the line at pdom, another horizontal dotted line is located at price=p+T. Below the line at p+T, a third horizontal dotted line is located at price=pf. A vertical dotted line located at quantity=Qfs extends from the x-axis to the point where line pf and the domestic supply line meet. A vertical dotted line located at quantity=QTs extends from the x-axis to the point where the line p+T and the domestic supply line meet. An unlabeled vertical dotted line extends from the x-axis to the point where the domestic demand and domestic supply lines meet. A vertical dotted line located at quantity=QTD extends from the x-axis to the point where the p+T and the domestic demand line meet. A vertical dotted line located at quantity=QfD extends from the x-axis to the point where the pf and domestic demand line meet. A is the region between the horizontal line at pdom and the domestic demand curve. B is the region underneath the line at pdom but above the line at p+T and to the left of the domestic supply curve. C is the region below the line at p+T but above the line at pf and to the left of the domestic supply line. F is the region below the domestic supply curve but above the line at pf and to the left of the line at QTs. D is the region between the horizontal lines at p+T and pf and the vertical lines at QTs and the intersection between the supply and demand curves. E is the region between the horizontal lines at p+T and pf and the vertical lines at QTD and the intersection between the supply and demand curves. G is the space below the domestic demand curve but above the line at pf and to the right of the line at QTD. C+F+D+E+G
Generally, international trade laws in the last 60 years have served to: radically lower tariffsincrease economic interdependence
As the value of the euro falls compared to the dollar, which of the following is the likely outcome for the U.S. balance of trade with the EU? American Exports to the EU will fall
As the result of exchange rate volatility: demand on trading economy can fluctuateeven large banks are significantly exposed
Some success stories in global trade include(s): a regional trade bloc that includes the U.S. and a few Central American nationscultural blending and variety never seen before
Brazil can produce 100 pounds of beef or 10 autos; in contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in producing beef? Brazil
Assuming that Brazil can produce 100 pounds of beef or 10 autos and the United States can produce 40 pounds of beef or 30 autos, what is the opportunity cost of producing one pound of beef in Brazil? 1/10 of an auto
Trade agreements and free-trade negotiations have: allowed for a more efficient use of the world’s productive resourcesstimulated protests based on issues other than protecting certain industries from competition
Refer to the video on the U.S.-South Korea free trade agreement. When free-trade agreements are negotiated,: some firms have greater access to export markets some firms the sell domestically produced products may be harmed
Under the principle of comparative advantage total output is greatest when each product is made by the country that has the lowest opportunity cost
If a nation has a comparative advantage in the production of good X, this means that the nation gives up less of alternative goods than other nations in producing a unit of X
If a country can, with a single unit of labor, produce more of both clothing and computers than another country, then the first country has an absolute advantage in both goods
If the Unites States can produce 500 bicycles (B) to produce 20 additional tractors (T) with the same resources, its opportunity cost may be expressed as: 25B = 1T
Country rubber bands paper clipsA 40 80B 10 40Countries A and B produce only rubber bands and paper clips, production levels if the country produces all rubber bands or paper clips is given above. In Country A the opportunity cost of producing 1 paper clip is: 1/2 rubber band
When there is no comparative advantage between countries there are no gains from specialization and trade
Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. Which of the following groups would be worse off if these two countries specialize and trade? Brazilian tomato producers
If Brazil gives up three automobiles for each ton of coffee it produces, while Peru gives up seven automobiles for each ton of coffee it produces, then Brazil has a comparative advantage in _____ production and should specialize in _____. coffee; coffee
Gains of trade are possible for two countries if they have: different opportunity costs.
World ouput of goods and services increases with specialization because: The wrold’s resources are being used more efficiently
In Germany, suppose 6 cameras or 4 bicycles can be produced with 1 unit of labor. In Japan, suppose 9 cameras or 5 bicycles can be produced with 1 unit of labor. Therefore: Japan has an absolute advantage in the production of both goods
Which of these is the basis of international trade? comparative advantage
Suppose the production of 1 ton of steel in the United States requires the same amount of resources as the production of 100 metric tons of wheat. In Canada, 2 tons of steel requires the same amount of resources as 200 metric tons of wheat. This means that: neither country has a comparative advantage
International trade all choices are correctlower prices to consumersalters the mix of domestic productionredistributes income toward export industries
To say that a country has a comparative advantage in the production of wine is to say that: its opportunity cost of producing wine is lower than any other country’s
If Britain would have to give up 75 hats to produce 25 additional sweaters, the opportunity cost to produce 1 sweater is 3
Suppose the production of 12 tons of cooper in the United States requires the same amount of resources as the production of 1 ton of aluminum. In Mexico, 12 tons of copper requires the same amount of resources as 2 tons of aluminum. This means that: The United States has a comparative advantage in producing copper
Suppose that Brazil and Peru exchange coffee and leather. Brazil can produce both coffee and leather more efficiently than Peru, but Brazil can produce coffee more efficiently than leather. Comparative advantage states that: Brazil should produce coffee, Peru should produce leather, and both countries should trade.
If the _________ differ between two countries, this suggests the possibility for mutually advantageous trade. opportunity cost
If 1000 Mexican pesos could buy $1.00 U.S. dollars in 2006 and $87 U.S. dollars in 2010, then the dollar strengthened against the peso
When the trading of one currency for another is determined by the laws of supply and demand it is called a ______ exchange rate system. flexible
a quota is a limit on the amount of foreign goods that can be imported
If the United States can produce either 200 bushels of corn or 400 bushels of wheat from a given quantity of resources, and Canada, using the same amount of resources, can produce either 40 bushels of corn or 100 bushels of wheat, which of the following statements are true? the United States has a comparative advantage in the production of corn
The ability of a country to produce a good at a lower opportunity cost is called comparative advantage
Countries Labor inputs Output commodity X Output of commodity Y United States 2 24 4Canada 2 8 2Using the production possibilities schedule above. The exhibit shows the number of units of commodity X each country would have to forgo to produce the additional units of commodity Y indicated. Further assume that the only input is labor and that it remains fully employed. The cost to the United States of producing an additional unit of Y is _____ units of X. 6
When two countries specialize on the basis of comparative advantage and then trade with each other both countries will be able to consume more than before specialization and trade
When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) ________ in producing that product. absolute advantage
Here are alternate outputs from one day’s labor input: USA: 12 bushels of wheat OR 3 yards of textiles. India: 3 bushels of wheat OR 12 yards of textiles. The opportunity cost of one bushel of wheat in India is: 4 yards of textiles
Protecting domestic jobs in industries like textiles, where the United States has a comparative disadvantage, may result in higher prices for textiles
When the world price of some good is above the domestic price (before trade), then after trade, that nation will likely be: exporting that item and importing whatever it produces at a comparative disadvantage
Use the graph below to identify the government revenue from the tariff on foreign shoes. In this graph, the x-axis is the quanitity of shoes and the y-axis is the price of shoes. The line for domestic supply slopes upward, and the line for domestic demand slopes downward. A horizontal dotted line connects the point where the domestic demand and the domestic supply curves cross to the y axis at price=pdom. Below the line at pdom, another horizontal dotted line is located at price=p+T. Below the line at p+T, a third horizontal dotted line is located at price=pf. A vertical dotted line located at quantity=Qfs extends from the x-axis to the point where line pf and the domestic supply line meet. A vertical dotted line located at quantity=QTs extends from the x-axis to the point where the line p+T and the domestic supply line meet. An unlabeled vertical dotted line extends from the x-axis to the point where the domestic demand and domestic supply lines meet. A vertical dotted line located at quantity=QTD extends from the x-axis to the point where the p+T and the domestic demand line meet. A vertical dotted line located at quantity=QfD extends from the x-axis to the point where the pf and domestic demand line meet. A is the region between the horizontal line at pdom and the domestic demand curve. B is the region underneath the line at pdom but above the line at p+T and to the left of the domestic supply curve. C is the region below the line at p+T but above the line at pf and to the left of the domestic supply line. F is the region below the domestic supply curve but above the line at pf and to the left of the line at QTs. D is the region between the horizontal lines at p+T and pf and the vertical lines at QTs and the intersection between the supply and demand curves. E is the region between the horizontal lines at p+T and pf and the vertical lines at QTD and the intersection between the supply and demand curves. G is the space below the domestic demand curve but above the line at pf and to the right of the line at QTD. D+E
Which of the following barriers to international trade harm domestic consumers? tariffsquotas non-tariff barriers
Why are some economists who favor free trade concerned about the proliferation of regional trade agreements? regional trade agreements may limit trade from outside the regions in agreementregional trade agreements terms may conflict with those of the WTO
If the U.S. wanted to ensure that its cars could be exported to Cuba without tariffs, avoid giving any other concessions to Cuba, and avoid angering Canada with its agreement, it should negotiate a: free-trade area
If the value of the euro appreciates compared to the dollar, what is the likely impact on U.S. exports to the EU? U.S exports to the EU rise
A weaker U.S. dollar typically: increases demand on the U.S. economymakes American exports cheapermakes American exporters happy
A nation suffering from inflation would have a reason to welcome: currency appreciation
A nation suffering from high unemployment would welcome: currency depreciationa wave of foreign investment
Some of the forces working against freer global trade are: bi-lateral trade agreementsstrategic trade policy by national governments
The global movement toward generally freer trade: threatens established livelihoods and ways of lifeoffers gains from trade to all trading nationsallows for sustained trade deficits by some nations

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